<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
DIGITAL LIGHTWAVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
-------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------
<PAGE> 2
(Logo Digital Lightwave, Inc.)
DIGITAL LIGHTWAVE, INC.
15550 LIGHTWAVE DRIVE
CLEARWATER, FLORIDA 33760
T: (727) 442-6677
HTTP://WWW.LIGHTWAVE.COM
April 15, 1999
Dear Stockholder:
You are cordially invited to attend the Company's 1999 Annual Meeting of
Stockholders to be held on Friday, May 14, 1999. The meeting will begin promptly
at 10:00 a.m., local time, at the Renaissance Vinoy Resort, 501 Fifth Avenue,
N.E., St. Petersburg, Florida 33701.
The official Notice of Meeting, Proxy Statement, Proxy Card and Annual
Report to Stockholders are included with this letter. The matters listed in the
Notice of Meeting are described in detail in the Proxy Statement.
The vote of every stockholder is important. Mailing your completed Proxy
Card will not prevent you from voting in person at the meeting if you wish to do
so. Please complete, sign, date and promptly return your Proxy Card in the
enclosed envelope. Your cooperation will be greatly appreciated.
Members of the Company's Board of Directors and management look forward to
greeting personally those stockholders who are able to attend.
Sincerely,
/s/ Gerry Chastelet
-----------------------------------
Gerry Chastelet
President and Chief Executive
Officer
<PAGE> 3
DIGITAL LIGHTWAVE, INC.
15550 LIGHTWAVE DRIVE
CLEARWATER, FLORIDA 33760
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1999
---------------------
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Digital Lightwave, Inc., a Delaware corporation (the "Company"),
will be held at the Renaissance Vinoy Resort, 501 Fifth Avenue, N.E., St.
Petersburg, Florida 33701 on Friday, May 14, 1999, at 10:00 a.m., local time,
for the following purposes:
1. To elect four (4) directors of the Company to hold office until the
2000 Annual Meeting of Stockholders or until their respective successors
are duly elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent auditor for the fiscal year ending December 31, 1999;
and
3. To transact such other business as may properly come before the
Meeting or any adjournment or postponement of the Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 31, 1999 will
be entitled to notice of and to vote at the Meeting and any adjournments
thereof. Each of these stockholders is cordially invited to be present and vote
at the Meeting in person. A list of stockholders entitled to vote at the meeting
will be available for inspection ten days prior to the Annual Meeting at the
principal offices of the Company, 15550 Lightwave Drive, Clearwater, Florida,
33760.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
AS PROMPTLY AS POSSIBLE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. SHOULD YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOUR
SHARES ARE REGISTERED IN DIFFERENT NAMES AND ADDRESSES, EACH PROXY SHOULD BE
SIGNED AND RETURNED TO ASSURE THAT ALL YOUR SHARES WILL BE VOTED. YOUR PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
By Order of the Board of Directors,
/s/ Steven H. Grant
------------------------------------
Steven H. Grant
Secretary
Clearwater, Florida
April 15, 1999
<PAGE> 4
DIGITAL LIGHTWAVE, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 1
SHARES OUTSTANDING AND VOTING RIGHTS........................ 1
PROPOSAL ONE -- ELECTION OF DIRECTORS....................... 4
PROPOSAL TWO -- RATIFICATION OF PRICEWATERHOUSECOOPERS LLP
AS INDEPENDENT AUDITOR.................................... 18
OTHER BUSINESS.............................................. 18
</TABLE>
i
<PAGE> 5
DIGITAL LIGHTWAVE, INC.
15550 LIGHTWAVE DRIVE,
CLEARWATER, FLORIDA 33760
---------------------
PROXY STATEMENT
FOR
THE 1999 ANNUAL MEETING OF STOCKHOLDERS
OF
DIGITAL LIGHTWAVE, INC.
TO BE HELD ON MAY 14, 1999
---------------------
GENERAL INFORMATION
Your proxy in the enclosed form is solicited by the Board of Directors (the
"Board") of Digital Lightwave, Inc., a Delaware corporation (the "Company"), for
use at its Annual Meeting of Stockholders to be held at the Renaissance Vinoy
Resort, 501 Fifth Avenue, N.E., St. Petersburg, Florida 33701 on May 14, 1999 at
10:00 a.m. (the "Meeting"), for the purposes set forth in the accompanying
notice and at any adjournment or postponement of the Meeting. The mailing of
this Proxy Statement and the accompanying Notice of Annual Meeting and form of
Proxy Card (the "Proxy Card") to the stockholders of the Company is expected to
commence on or about April 15, 1999. The Company's 1998 Annual Report is being
mailed to stockholders concurrently with this Proxy Statement. The 1998 Annual
Report is not to be regarded as proxy soliciting material or as a communication
by means of which any solicitation of proxies is to be made.
The shares of the Company's Common Stock, par value $0.0001 per share
("Common Stock"), represented by proxy will be voted in accordance with the
instructions given on the Proxy Card, subject to the proper execution of the
Proxy Card and its receipt by the Company prior to the close of voting at the
Meeting or any adjournment or postponement thereof. Proxies received by the
Company on which no contrary instruction has been given will be voted "FOR" the
election of the directors to the Board nominated by the Board, and "FOR" the
ratification of the selection of the independent auditor. A stockholder giving a
proxy has the power to revoke it at any time before it is exercised by filing
with the Secretary of the Company an instrument revoking it or a duly executed
proxy bearing a later date. The powers of the proxy holders will be suspended if
the person executing the Proxy Card is present at the Meeting and votes in
person.
Copies of solicitation material will be furnished to brokerage firms,
nominees, fiduciaries and custodians holding shares of Common Stock in their
names which are beneficially owned by others ("record holders") to forward to
such beneficial owners. In addition, the Company may reimburse such persons and
the Company's transfer agent for their reasonable out-of-pocket expenses in
forwarding the solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented, if deemed desirable or
necessary, by either telephone, telegram, facsimile or personal solicitation by
directors, officers or employees of the Company. No additional compensation will
be paid for any such services. The Company reserves the right, if deemed
desirable or necessary, to retain a proxy solicitation firm to deliver
solicitation materials to record holders for distribution by them to their
principals and to assist the Company in collecting proxies from such holders.
The costs of these services to the Company, exclusive of out-of-pocket costs, is
not expected to exceed $5,000. Except as described above, the Company does not
intend to solicit proxies other than by mail.
SHARES OUTSTANDING AND VOTING RIGHTS
RECORD DATE AND SHARES OUTSTANDING
Only holders of shares of Common Stock of record as of the close of
business on March 31, 1999 (the "Record Date"), are entitled to vote at the
Meeting. On the Record Date, 26,558,766 shares of Common Stock (collectively,
the "Shares") were issued and outstanding. Each of the Shares is entitled to one
vote on all matters to be voted upon at the Meeting.
<PAGE> 6
QUORUM; BROKER NON-VOTES; ABSTENTIONS
The presence, in person or by proxy duly authorized, of the holders of a
majority of the Shares will constitute a quorum for the transaction of business
at the Meeting and any adjournment or postponement thereof. The Shares that are
voted by proxy "FOR," "AGAINST" or "WITHHELD FROM" a proposal are treated as
being present at the Meeting for purposes of establishing a quorum and are also
treated as shares entitled to vote at the Meeting with respect to such proposal.
Broker non-votes (i.e., Shares held by a broker or nominee which are
represented at the Meeting, but with respect to which such broker or nominee is
not empowered to vote on a particular proposal) will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Meeting, but will not be counted for purposes of determining the number
of votes cast with respect to a particular proposal on which the broker has
expressly not voted. Accordingly, a broker non-vote will not affect the outcome
of the voting on any proposal set forth in this Proxy Statement.
Directors will be elected by a plurality of votes of the Shares present in
person or represented by proxy at the Meeting. Any of the Shares not voted
(whether by abstention, broker non-votes or otherwise) will have no impact on
the election of directors, except to the extent that the failure to vote for one
director nominee results in another nominee receiving a larger portion of votes.
The proposals submitted to the Company's stockholders in the Proxy Card must be
approved by the vote of the holders of a majority of the Shares represented in
person or by proxy and entitled to vote at the Meeting. In determining whether
such proposals have been approved, abstentions and broker non-votes are not
counted as votes "FOR" or "AGAINST" the proposal.
REVOCABILITY OF PROXY
A proxy may be revoked by a stockholder at any time prior to the voting at
the Meeting by written notice to the Secretary of the Company, by submission of
another duly executed proxy bearing a later date or by voting in person at the
Meeting. Such notice or later proxy will not affect a vote on any matter taken
prior to the receipt thereof by the Company or its transfer agent. The mere
presence at the Meeting of the stockholder who has appointed a proxy will not
revoke the prior appointment. If not revoked, the proxy will be voted at the
Meeting in accordance with the instructions indicated on the Proxy Card by the
stockholder or, if no instructions are indicated, will be voted "FOR" the slate
of directors described herein, "FOR" the ratification and approval of the
Independent Auditor, and as to any other matter that may be properly brought
before the Meeting, in accordance with the judgment of the proxy holders.
2
<PAGE> 7
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 1, 1999 by (i) each person who is
known by the Company to own beneficially more than five percent (5%) of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii) all
of the executive officers including executive officers named in the Summary
Compensation Table (the "Named Executive Officers"), and (iv) all directors and
executive officers of the Company as a group. To the knowledge of the Company,
except as noted in the footnotes below, all persons listed below have sole
voting and investing power with respect to their shares of Common Stock, except
to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME NUMBER PERCENT
---- ---------- -------
<S> <C> <C>
Bryan J. Zwan(2)............................................ 20,000,000 74.56
Hugh Brian Haney(3)......................................... 2,000,000 7.45
Gerry Chastelet............................................. -- *
Steven H. Grant(4).......................................... 107,430 *
George Matz(5).............................................. 75,000 *
Ali Haider(6)............................................... 14,304 *
Joe Fuchs(7)................................................ 21,165 *
William F. Hamilton(8)...................................... 33,332 *
William M. Seifert(8)....................................... 33,332 *
All executive officers and directors as a group (9
persons)(9)............................................... 20,284,563 75.62
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") that deem shares to be
beneficially owned by any person who has or shares voting or investment
power with respect to such shares. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of Common Stock subject to options
that are currently exercisable or exercisable within 60 days of April 1,
1999 are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Includes 2,000,000 shares for which an option has been granted to Hugh Brian
Haney pursuant to a litigation settlement and 15,000,000 shares held by Dr.
Bryan J. Zwan through his wholly owned Nevada corporation, ZG Nevada, Inc.
Dr. Zwan's address is 15550 Lightwave Drive, Clearwater, Florida 33760.
(3) Represents 2,000,000 shares for which an option has been granted by Bryan J.
Zwan, pursuant to a litigation settlement. Mr. Haney's address is c/o Law
Office of Eric L. Brown Co., L.P.A., Suite 550, 172 East State Street,
Clearwater, Florida 33755.
(4) Consists of 7,430 shares of Common Stock and 100,000 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of April 1, 1999.
(5) Consists of 75,000 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 1, 1999.
(6) Consists of 3,304 shares of Common Stock and 11,000 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of April 1, 1999.
(7) Consists of 9,500 shares of Common Stock and 11,665 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60
days of April 1, 1999.
(8) Consists of 33,332 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 1, 1999.
(9) Consists of 20,020,234 shares of Common Stock and 264,329 shares issuable
upon exercise of options that are currently exercisable or exercisable
within 60 days of April 1, 1999.
3
<PAGE> 8
PROPOSAL ONE
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
The Company's Bylaws provide that the Board can fix the authorized number
of directors form time to time between one (1) and nine (9). The Board consists
of four (4) directors which is the authorized number currently fixed by the
Board pursuant to the Company's Bylaws. Each of the four (4) directors is to be
reelected to the Board at the Meeting. Each director nominee elected at the
Meeting will hold office until the next annual meeting of stockholders of the
Company, or until his successor is duly elected and qualified, unless he resigns
or his seat on the Board becomes vacant due to his death, removal or other cause
in accordance with the Bylaws of the Company. Management knows of no reason why
any of these nominees would be unable or unwilling to serve; but, in the event
that any director nominee is unable or unwilling to serve, the proxies will be
voted for the election of such other person(s) for the office of director as
management may recommend in the place of such nominee. THE BOARD RECOMMENDS
VOTING "FOR" THE NOMINEES LISTED BELOW.
INFORMATION REGARDING DIRECTOR NOMINEES
The following table sets forth the names, ages, principal occupations for
the periods indicated and other directorships of the four (4) director nominees
at the Meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE DIRECTOR
NAME AGE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------- --------
<S> <C> <C> <C>
Dr. Bryan J. Zwan 50 Dr. Zwan founded the Company in October 1990 1990
and has served as Chairman of the Board
since its inception. In addition, Dr. Zwan
served as the company's Chief Executive
Officer from the Company's inception until
December 1998 and served as its President
from inception until March 1996 and from
October 1996 until December 1998. From 1987
to 1991, Dr. Zwan was Chief Executive
Officer of Digital Photonics, Inc. ("DPI"),
a SONET multiplexer manufacturer which he
founded in 1987. DPI was purchased in
December 1990 by Digital Transmission
Systems, Inc., a manufacturer of digital
cross-connect equipment and DS1 modems. From
1985 to 1987, Dr. Zwan was Vice President,
Optical Products at DSC Communications
Corporation, a global provider of
telecommunication transmission, cross-
connect and network access equipment. Dr.
Zwan was a member of the Research Facility
Staff at the Massachusetts Institute of
Technology for two years, and holds a Ph.D.
in Space Physics from Rice University and
B.S. degrees in Physics and Chemistry from
the University of Houston.
William F. Hamilton 59 Dr. Hamilton is the Landau Professor of 1997
Management and Technology at the Wharton
School of the University of Pennsylvania and
has been a professor at the University of
Pennsylvania since July 1967. He is also a
director of the following public companies:
Centocor, Inc., Hunt Manufacturing
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE DIRECTOR
NAME AGE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---- --- -------------------------------------- --------
<S> <C> <C> <C>
Co., Marlton Technologies, Inc. and Neose
Technologies, Inc.
Gerry Chastelet 52 Mr. Chastelet currently serves as President 1998
and Chief Executive Officer and a Director
and joined the Company on December 31, 1998.
Prior to joining the Company, Mr. Chastelet
served as President and Chief Executive
Officer of Wandel & Goltermann Technologies,
Inc., a global supplier of communications
test and measurement equipment, from
December 1995 to October 1998. From June
1993 to November 1995, he served as Vice
President Sales, Marketing and
Service-Americas and Asia Pacific for
Network Systems Corporation, a supplier of
channel-attached communications solutions
for large mainframe computers. From 1989 to
1993, he was Vice President Sales, Marketing
and Service for Infotron/Gandalf Systems
Corporation. Mr. Chastelet holds a degree in
Electronics Engineering from Devry Institute
of Technology and is a graduate of the
University of Toronto Executive MBA Program.
William Seifert 48 Mr. Seifert is currently a General Partner at 1997
Prism Venture Partners of Westwood,
Massachusetts. Prior to this he served as
Chief Executive Officer of Agile Networks,
Inc., a wholly-owned subsidiary of Lucent
Technologies, Inc. from 1991 to 1997. Prior
to founding Agile Networks, Inc. in 1991,
Mr. Seifert was also the founder of
Wellfleet Communications, now Bay Networks.
</TABLE>
VOTE REQUIRED AND BOARD RECOMMENDATION
The four (4) nominees for director receiving the highest number of
affirmative votes of the shares present in person or represented by proxy at the
Meeting and entitled to be voted for them shall be elected as directors of the
Company. Votes withheld from any director nominee are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but have no other legal effect under Delaware law. Stockholders do not have the
right to cumulate their votes in the election of directors. THE BOARD RECOMMENDS
A VOTE "FOR" THE NOMINEES ABOVE LISTED.
5
<PAGE> 10
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers And Directors
The executive officers and directors of the Company and their ages as of
the date of this Proxy Statement are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Bryan J. Zwan...................... 51 Chairman of the Board
Gerry Chastelet........................ 52 President and Chief Executive Officer
and Director
Steven H. Grant........................ 39 Executive Vice President, Finance,
Chief Financial Officer and Secretary
George Matz............................ 49 Executive Vice President and General
Manager, Network products
Ali Haider............................. 48 Senior Vice President, Engineering
Joe Fuchs.............................. 47 Vice President, Quality Management
Dr. William F. Hamilton(1)(2)(3)....... 59 Director
William Seifert(1)(2)(3)............... 48 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
A description of the background of each of the Company's current directors
has been provided above under "Information Concerning Director Nominees."
Following is a description of the background of each of the Company's executive
officers other than the directors:
Mr. Grant currently serves as Executive Vice President, Finance, Chief
Financial Officer and Secretary and joined the Company in September 1997.
Prior to joining the Company, Mr. Grant served as Executive Vice President,
Chief Financial Officer, Treasurer and Corporate Secretary at Precision
Systems Inc. from July 1996 through September 1997. Mr. Grant also served
as Executive Vice President, Chief Financial/Administrative Officer and
Treasurer for Silver King Communications Inc. from December 1992 through
July 1996, and as Director of Corporate Finance, Investor Relations and
Assistant Treasurer at Home Shopping Network from February 1989 through
December 1992. Mr. Grant holds a Bachelor's Degree in Accounting from the
University of Alabama and holds an MBA in Finance from the University of
South Florida.
Mr. Matz currently serves as Executive Vice President and General
Manager, Network Products and joined the Company in May 1998. Mr. Matz
joined the Company as the Executive Vice President of Global Marketing and
Sales and switched to his current position in February, 1999. Prior to
joining the Company, Mr. Matz served as Vice President of Global Sales at
Boston Technology, Inc., a supplier of systems, software and services to
telecommunications companies, from December 1995 to May 1998. From August
1994 to December 1995, Mr. Matz served as Executive Director of Global
Sales at Dale, Gesek, McWilliams and Sheridan, Inc., an international
supplier of telecommunications products and services. From March 1990 to
August 1994, Mr. Matz served as Director of North American Sales at Summa
Four, Inc. Mr. Matz holds a B.S. degree from Wilkes University.
Mr. Haider currently serves as Vice President, Customer Service and
Support and joined the Company in September 1997. Prior to joining the
Company, Mr. Haider was Director, Technical Support Center at AT&T/Paradyne
Corporation from May 1996 to September 1997, Director, Engineering from May
1991 to May 1996, and Engineering Manager from July 1984 through May 1991.
Mr. Haider holds a Masters Degree in Electrical Engineering from the
University of Houston, a B.S. in Electrical Engineering from the University
of Engineering and Technology, Lahore, Pakistan, and a B.S. in Physics and
Math from Gordon College, University of Punjab.
6
<PAGE> 11
Mr. Fuchs currently serves as Vice President, Quality Management and
joined the Company in January 1997. Prior to joining the Company, Mr. Fuchs
was a System Test Lead and Project Manager at AT&T/Paradyne from May 1992
through December 1996. Mr. Fuchs also worked at AT&T Bell Laboratories as a
member of technical staff in the Transmission Center and the Quality
Assurances Center from 1981 though 1992. Mr. Fuchs holds a B.S. in
Electrical Engineering from the Pratt Institute and a M.S. in Electrical
Engineering from Columbia University.
BOARD OF DIRECTORS
The Company's Bylaws provide that the Board can fix the authorized number
of directors from time to time between one and nine. The Board currently is
fixed at four (4) members: Messrs. Zwan, Chastelet, Hamilton, and Seifert. There
are no family relationships among any of the directors or executive officers of
the Company.
EXECUTIVE OFFICERS
Digital Lightwave's executive officers are elected by the Board of
Directors on an annual basis and serve until the next annual meeting of the
Board of Directors or until their successors have been duly elected and
qualified. There are no family relationships among any of the directors or
executive officers of the Company.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board held nine (9)
regular meetings and five (5) special meetings. Each director attended at least
75% of the aggregate number of Board meetings and meetings of committees on
which he served which occurred on or after the initiation of his term as a
director.
The Board of Directors has an Audit Committee, a Compensation Committee, a
Special Investigative Committee, and a Nominating Committee The Audit Committee,
composed of Messrs. Hamilton and Seifert, is responsible for reviewing financial
statements, accounting and financial policies and internal controls and
reviewing the scope of the independent auditor's activities and fees. The Audit
Committee held five (5) meetings during fiscal 1998. The Compensation Committee,
composed of Messrs. Marshall and Seifert during fiscal 1998, is responsible for
reviewing and approving, within its authority, compensation, benefits, training
and other human resource policies. The Compensation Committee held two (2)
meetings during fiscal 1998. The Compensation Committee currently consists of
Messrs. Hamilton and Seifert. Each director who served on the Audit Committee or
the Compensation Committee attended at least 75% of such respective committee's
meetings held during fiscal 1998 which occurred on or after the initiation of
his term as a director. In 1999, the Board formed a Nominating Committee to
select nominees to the Board of Directors. The Nominating Committee consists of
Messrs. Hamilton and Seifert.
COMPENSATION OF DIRECTORS
Directors of the Company who are not officers or employees of the Company
receive an annual fee of $10,000. Directors are also reimbursed for travel and
other expenses relating to attendance at meetings of the Board or committees. In
addition, in connection with their services on a special investigative committee
formed by the Board to investigate the class action litigation and the related
underlying restatement issues, Messrs. Hamilton and Seifert received $4,750 and
$6,250 respectively. Effective December 8, 1997, Mr. Seifert began serving as a
consultant to the Company. In 1998, Mr. Seifert received $12,750 for services
performed as a consultant to the Company. Under the Option Plan, non-employee
directors are also eligible to receive stock options in consideration for their
services. In fiscal 1998, none of the non-employee directors were granted
options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the SEC.
7
<PAGE> 12
Officers, directors and greater than ten percent stockholders are required by
regulations of the SEC to furnish the Company with copies of all Section 16(a)
forms that they file. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representation that
no other reports were required, the Company's officers, directors and greater
than ten percent stockholders complied with all applicable Section 16(a) filing
requirements, except that Dr. Bryan Zwan filed one late Form 4 for a transaction
and Messrs. Joe Fuchs and Ali Haider each filed one late Form 5 for a
transaction.
8
<PAGE> 13
EXECUTIVE COMPENSATION
The following table shows, for the year ended December 31, 1998, the cash
and other compensation awarded to, earned by or paid to Dr. Zwan and each other
executive officer who earned in excess of $100,000 for all services in all
capacities (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------- -------
--------------------------------- RESTRICTED ALL
OTHER ANNUAL STOCK OPTIONS/ LTIP OTHER
SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ---- -------- ------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bryan J. Zwan(1)(2)....... 1998 $309,587 $ -- $ -- $-- $ -- $--
Chairman of the Board 1997 305,779 -- -- -- -- -- $ --
and Former President 1996 300,000 -- -- -- -- -- 215,340
and CEO
Gerry Chastelet(3)........ 1998 1,060 -- -- -- -- -- --
President and Chief 1997 -- -- -- -- -- -- --
Executive Officer 1996 -- -- -- -- -- -- --
Steven H. Grant........... 1998 193,333 40,000 -- -- -- -- 1,800(4)
Executive Vice President, 1997 40,615 -- -- -- -- -- 500(4)
Finance, Chief Financial 1996 -- -- -- -- -- -- --
Officer and Secretary
George Matz............... 1998 148,415 50,000 -- -- -- -- 8,000(5)
Executive Vice President 1997 -- -- -- -- -- -- --
and General Manager, 1996 -- -- -- -- -- -- --
Networks Products
Ali Haider................ 1998 149,443 22,275 -- -- -- -- 1,963(4)
Senior Vice President, 1997 34,788 25,000 -- -- -- -- --
Engineering 1998 -- -- -- -- -- -- --
Joe Fuchs................. 1998 117,878 -- -- -- -- -- --
Vice President, Quality 1997 86,018 1,000 -- -- -- -- --
Management 1996 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Dr. Zwan served as Chief Executive Officer until his resignation from that
position on December 31, 1998.
(2) Amounts include the payment of $9,587 and $5,779 of earned and unused
vacation from 1997 and 1996, which were paid in 1998 and 1997, respectively;
and 1995 deferred compensation of $215,340 which was paid in 1996.
(3) Mr. Chastelet commenced employment on December 31, 1998.
(4) Reflects 401(k) matching contributions.
(5) Reflects Automobile Allowance.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") became effective
on March 5, 1996. The purpose of the Option Plan is to attract and retain
qualified personnel, to provide additional incentives to employees, officers,
directors and consultants of the Company and to promote the success of the
Company's business. A reserve of 5,000,000 shares of Common Stock has been
established for issuance under the Option Plan. The Option Plan is administered
by the Board who may delegate the administration of the plan to a committee of
the Board. The Board now has, and such committee would have, complete discretion
to determine which eligible individuals are to receive option grants, the number
of shares subject to each such grant, the status of any granted option as either
an incentive stock option or a non-statutory option, the vesting schedule to be
in effect for the option grant and the maximum term for which any granted option
is to remain outstanding.
9
<PAGE> 14
Each option granted under the Option Plan has a maximum term of ten years,
subject to earlier termination following the optionee's cessation of service
with the Company. Options granted under the Option Plan may be exercised only
for fully vested shares. The exercise price of incentive stock options and non-
statutory stock options granted under the Option Plan must be at least 100% and
85%, respectively, of the fair market value of the stock subject to the option
on the date of grant (or 110% with respect to holders of more than 10% of the
voting power of the Company's outstanding stock). The Board or, when appointed,
such committee, has the authority to determine the fair market value of the
stock. The purchase price is payable immediately upon the exercise of the
option. Such payment may be made in cash, in outstanding shares of Common Stock
held by the participant, through a promissory note payable in installments over
a period of years or any combination of the foregoing.
The Board may amend or modify the Option Plan at any time, provided that no
such amendment or modification may adversely affect the rights and obligations
of the participants with respect to their outstanding options or vested shares
without their consent. In addition, no amendment of the Option Plan may, without
the approval of the Company's stockholders (i) modify the class of individuals
eligible for participation, (ii) increase the number of shares available for
issuance, except in the event of certain changes to the Company's capital
structure, or (iii) extend the term of the Option Plan. The Option Plan will
terminate on March 4, 2006, unless sooner terminated by the Board.
Section 162(m) of the IRC limits the Company's deduction in any one fiscal
year for federal income tax purposes to $1 million per person with respect to
the Company's Chief Executive Officer and its four (4) other highest paid
executive officers who are employed on the last day of the fiscal year unless
the compensation was not otherwise subject to the deduction limit. Certain
performance-based compensation is not included in this $1 million limitation.
Stock options may qualify for exclusion from this limitation if the plan under
which they are granted meets certain conditions. At present, the Option Plan
does not satisfy these conditions. Accordingly, the Company will not be able to
claim a tax deduction for certain exercises of NSOs or disqualifying
dispositions of ISOs by the CEO (should it grant any in the future) and its four
(4) other highest paid executive officers to the extent that the income from
such exercises or dispositions, combined with such executive's other taxable
compensation for the year, exceeds $1 million.
As of December 31, 1998, the Company had outstanding options under the
Option Plan exercisable into an aggregate of 2,690,146 shares of Common Stock.
The following table sets forth information concerning stock options awarded
to each of the Named Executive Officers during 1998. All such options were
awarded under the Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
GRANTED YEAR ($/SH) DATE 5% 10%
---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bryan J. Zwan.................... -- --% $ -- -- $ -- $ --
Gerry Chastelet.................. 600,000 25.40 2.3130 12/31/04 471,583 1,070,241
Steven H. Grant.................. 200,000 8.47 4.6875 03/26/04 704,117 1,232,662
George Matz...................... 300,000 12.70 4.4375 05/19/04 477,879 1,060,357
Ali Haider....................... 48,000 2.03 4.0235 12/19/04 129,244 233,089
Joe Fuchs........................ 30,000 1.27 3.9793 12/19/04 79,122 143,032
</TABLE>
- ---------------
(6) Potential realizable value is based on the assumption that the Common Stock
appreciates at the annual rate shown (compounded annually) from the date of
grant until the expiration of the option term. These numbers are calculated
based on the requirements of the SEC and do not reflect the Company's
estimate of future price growth.
10
<PAGE> 15
The following table sets forth certain information regarding options to
purchase shares of Common Stock held as of December 31, 1998 by each of the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FY-END (#) FY-END($)(1)
ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bryan J. Zwan............... -- $ -- -- -- $ -- $ --
Gerry Chastelet............. -- -- -- 600,000 -- --
Steven H. Grant............. -- -- 50,000 150,000 -- --
George Matz................. -- -- 75,000 225,000 -- --
Ali Haider.................. -- -- -- 48,000 -- --
Joe Fuchs................... -- -- 4,999 25,001 -- --
</TABLE>
- ---------------
(1) Values shown in these columns reflect the difference between the closing
price of $2.313 on December 31, 1998 and the exercise price of the options
and does not include the federal and state taxes due upon exercise.
STOCK PURCHASE PLAN
On August 25, 1997, the Board approved the Stock Purchase Plan whereby
300,000 shares of Common Stock were reserved for issuance and purchase by
employees of the Company to assist them in acquiring a stock ownership interest
in the Company and to encourage them to remain employees of the Company. The
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code and permits eligible employees to purchase shares of Common Stock
at a discount through payroll deductions during specified six-month offering
periods. No employee may purchase more than $25,000 worth of stock in any
calendar year or 1,500 shares of Common Stock in any one offering period. The
Stock Purchase Plan is administered by an Administrative Committee appointed by
the Board and provides generally that the purchase price must not be less than
85% of the fair market value of the Common Stock on the first or last day of the
offering period, whichever is lower. As of March 31, 1998, 123,153 shares have
been purchased under the Stock Purchase Plan.
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company entered into a letter agreement dated as of December 31, 1998
(the "Chastelet Agreement"), with Gerry Chastelet, the Company's Chief Executive
Officer and President. The Chastelet Agreement provides for: (1) employment at
will; (2) an annual salary of $275,000; (3) a $150,000 signing bonus payable
over two years; and (4) a performance bonus of up to 50% of his base salary to
be paid based on 80% quantitative and 20% qualitative criteria to be established
by the Company's board of directors. In addition, the Company granted to Mr.
Chastelet stock options to purchase 600,000 shares of Common Stock at an
exercise price of $2.313 per share, of which 100,000 stock options vest after
each six months of employment. In the event of a "change in control" Mr.
Chastelet's unvested options will accelerate.
The Company entered into a letter agreement dated as of April 13, 1998 and
an addendum to the letter agreement dated February 9, 1999 (the "Matz
Agreements"), with George J. Matz, the Company's Executive Vice President,
Global Marketing and Sales. The Matz Agreements provide for: (1) employment at
will; (2) an annual salary of $225,000; (3) a $150,000 sign-on bonus payable
over three years; and (4) a performance bonus of 20% for the first year. In
addition, the Company granted to Mr. Matz stock options to purchase 300,000
shares of Common Stock at an exercise price of $4.4375 per share, of which
75,000 stock options vest on December 31, 1999, and 75,000 vest on each of the
second and third of his employment anniversary dates. In the event of a "change
in control" Mr. Matz's unvested options will accelerate.
The Company entered into an employment agreement effective as of February
27, 1998 (the "Grant Agreement"), with Steven H. Grant, the Company's Executive
Vice President, Finance, Chief Financial
11
<PAGE> 16
Officer and Secretary. The Grant Agreement provides for: (1) an employment term
of three years which automatically renews for an additional two years unless
either Mr. Grant or the Company provides reasonable notice of non-renewal prior
to expiration; (2) an annual salary of $200,000; and (3) a $40,000 bonus (which
is primarily an acceleration of a deferred sign-on bonus) to be paid upon
completion of the Company's filings with the SEC for the year ended December 31,
1997. The Grant Agreement also provides that the Company will provide to Mr.
Grant on an annual basis sufficient funds to purchase a term life insurance
policy payable to his heirs and a disability insurance policy to provide
comparable compensation, including benefits over the life of the agreement. In
addition, the Company granted to Mr. Grant stock options to purchase 200,000
shares of Common Stock at an exercise price of $4.6875 per share, of which
50,000 stock options vest on the date of grant and 50,000 stock options vest on
each of the three anniversaries following the date of grant. As a result of this
new option grant, the previously issued grant for 75,000 shares was canceled. In
the event that Mr. Grant's employment with the Company terminates, all stock
options that have not yet vested will continue to vest except in the event of a
"change in control" whereby the unvested options will accelerate. In the event
of his termination without "cause," including due to a "change in control" or a
"change in duties" (as such terms are defined in the Grant Agreement), Mr. Grant
will be entitled to severance compensation, including all benefits, for a period
of 18 to 24 months. The Company is not obligated to pay compensation and
benefits under the Grant Agreement if Mr. Grant's employment is terminated for
"cause."
The Company entered into a letter agreement dated as of September 8, 1997
as modified by letters dated July 2, 1998 and August 4, 1998 with Ali Haider
(the "Haider Agreements"), the Company's Senior Vice President, Engineering. The
Haider Agreements provide for: (1) an annual salary of $170,000; and (2) a
performance bonus of $22,275 for positive first and second quarter 1998
performance. In addition, the Company agreed to grant to Mr. Haider certain
stock options. In the event of the termination of Mr. Haiders's employment for
any reason (other than a criminal act), Mr. Haider is entitled to severance pay
in the amount of six months base salary at the greater of Mr. Haider's base
salary as of the date of any termination of employment or as of July 27, 1998.
SECTION 401(K) PLAN
In 1997, the Company adopted a 401(k) Salary Savings Plan (the "401(k)
Plan") covering the Company's full-time employees located in the United States.
The 401(k) Plan is intended to qualify under Section 401(k) of the Internal
Revenue Code, so that contributions to the 401(k) Plan by employees or by the
Company, and the investment earnings thereon, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,000 in 1998) and to have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional matching contributions to the 401(k) Plan by the Company
on behalf of all participants in the 401(k) Plan. Currently, the Company matches
the first 6% of such voluntary contributions at 50% of the amount contributed by
the employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1998, the Compensation Committee of the Board consisted of Messrs.
Marshall and Seifert. No executive officer of the Company served on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions during Fiscal 98.
Additionally, no member of the Compensation Committee is currently or was
formally an officer or employee of the Company. Effective December 8, 1997, Mr.
Seifert began serving as a consultant to the Company. In 1998, Mr. Seifert
received $12,750 for services performed as a consultant to the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 15, 1998, the Company loaned $100,000 to Dr. Zwan, the
Company's Chairman of the Board. The loan has a simple interest rate of 9% per
annum, is evidenced by an unsecured promissory note and is due December 14,
1999. As of March 15, 1999, $100,000 was the balance outstanding on such loan
plus accrued and unpaid interest thereon. In addition, Ms. Licciardi and her
spouse each received loans in Fiscal 98
12
<PAGE> 17
in the amount of $71,316 which were later forgiven under the terms of their
respective separation agreements. See "Employment Agreements and Severance
Arrangements." In accordance with the Company's policy on related party
transactions, the loans were approved by the independent members of the Audit
Committee of the Board of Directors.
REPORT ON REPRICING OF OPTIONS
On March 26, 1998, the Compensation Committee of the Board (the
"Committee") approved a resolution authorizing the repricing by amendment
("repricing") of all outstanding stock options held by all then employees on the
terms described below. The Committee noted in its report that the overall
purpose of the Company's stock option plans had been to attract and retain the
services of the Company's employees, consultants and directors, and to provide
incentives to such persons to exert maximum efforts for the Company's success.
The Committee concluded that the decline in the market value of the Company's
Common Stock had frustrated these purposes and diminished the value of the
Company's stock option program as an element of the Company's compensation
arrangements. The March 26th resolution offers each employee the right to cancel
existing options at exercise prices greater than $12.75 per share with new
option grants at an exercise price of $4.688 per share, which was the relevant
market price on the date of the offer. Under the terms of this offer, should the
employee accept the new option grant, he or she will be subject to a new three
(3) year vesting schedule effective March 26, 1998, and six (6) year option term
(as opposed to a ten (10) year option term.) As of April 9, 1998, all executive
officers holding such options had elected to accept these new option grants.
The Compensation Committee:
William Jefferson Marshall
William Seifert
April 9, 1998
13
<PAGE> 18
The following table sets forth certain information concerning repricing
during the last ten years of options to purchase the Company's Common Stock held
by executive officers of the Company.
TEN-YEAR OPTION REPRICINGS(1)
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
MARKET PRICE OPTION TERM
NUMBER OF OF STOCK AT EXERCISE PRICE REMAINING
OPTIONS TIME OF AT TIME OF AT DATE OF
REPRICED OR REPRICING OR REPRICING OR REPRICING OR
AMENDED AMENDMENT AMENDMENT NEW EXERCISE AMENDMENT
NAME(2) DATE (#) ($) ($) PRICE($) (IN YEARS)
- ------- -------- ----------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Mitchell A. Chancey(3)... 3/26/98 10,000 4.688 13.125 $ 4.688 5.70
12/26/97 10,000 12.750 18.250 13.125 5.95
Joe Fuchs................ 3/26/98 10,000 4.688 13.125 4.688 5.70
12/26/97 10,000 12.750 18.250 13.125 5.95
04/30/97 5,000 4.875 9.000 5.250 5.60
Gerald T. Gentile........ 04/30/97 60,000 4.875 9.000 5.250 5.60
Steven H. Grant.......... 3/26/98 200,000 4.688 13.125 4.688 5.47
12/26/97 75,000(4) 12.750 16.000 13.125 5.72
Ali Haider............... 3/26/98 33,000 4.688 13.125 4.688 5.53
12/26/97 33,000 12.750 16.813 13.125 5.78
Kenneth R. Hargrove...... 04/30/97 10,000 4.875 9.000 5.250 5.60
Seth P. Joseph(3)........ 04/30/97 656,666 4.875 9.000 5.250 9.61
Denise Licciardi(3)...... 04/30/97 15,000 4.875 9.000 5.250 5.60
Carlos J. Perez.......... 3/26/98 30,000 4.688 13.125 4.688 5.34
12/26/97 30,000 12.750 12.750 13.125 5.59
Michael Tinsley.......... 3/26/98 20,000 4.688 13.125 4.688 5.42
12/26/97 20,000 12.750 15.625 13.125 5.67
</TABLE>
- ---------------
(1) Additional information related to this schedule can be found in the "Report
on Repricing of Options" contained herein.
(2) The positions of each executive officer is included in the "Information
Concerning Directors and Executive Officers" contained herein.
(3) Information on repricing excludes shares that are beneficially owned by
family members.
(4) This grant was canceled. See "Employment Agreements and Severance
Arrangements" above.
14
<PAGE> 19
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") recommends to the Board
compensation for the Company's officers and directors and oversees the
administration of the Company's employee stock option and stock purchase plans.
All decisions of the Committee relating to compensation of the Company's
executive officers are reviewed and approved by the entire Board.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers. The Committee attempts to achieve these
goals by integrating on an individualized basis competitive annual base salaries
with stock options through the Company's stock option plan and otherwise. The
Committee believes that cash compensation in the form of salary and bonus
provides the Company's executives with short term rewards for success in
operations, and that long term compensation through the award of stock options
better coordinates the objectives of management with those of the stockholders
with respect to the long term performance and success of the Company. The
Committee generally takes into consideration a variety of subjective and
objective factors in determining the compensation package for executive
officers, including how compensation compares to that paid by competing
companies and the responsibilities and performance by each executive and the
Company as a whole. In making its determinations, the Committee attempts to
address the unique challenges which are present in the telecommunications
industry in which the Company competes against a number of public and private
companies with respect to attracting and retaining executives and other key
employees.
The Committee has relied heavily on the equity/option position of
executives as an important mechanism to retain and motivate executives and key
employees while at the same time aligning the interests of the executives with
the interests of the stockholders generally. The Committee believes that option
grants are instrumental in motivating employees to meet the Company's future
goals. By working to increase the Company's value, one of the Company's primary
performance goals is met and the executives are likewise compensated through
option value.
Section 162(m) of the IRC limits the Company's deduction in any one fiscal
year for federal income tax purposes to $1 million per person with respect to
the Company's Chief Executive Officer and its four (4) other highest paid
executive officers who are employed on the last day of the fiscal year unless
the compensation was not otherwise subject to the deduction limit. Certain
performance-based compensation is not included in this $1 million limitation.
Stock options may qualify for exclusion from this limitation if the plan under
which they are granted meets certain conditions. At present, the Option Plan
does not satisfy these conditions. The Compensation Committee is currently
evaluating whether to proceed to qualify under Section 162(m).
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Bryan J. Zwan has served as the Chief Executive Officer of the Company
since its inception in October 1990 until his resignation on December 31, 1998.
Mr. Chastelet commenced employment as Chief Executive Officer on December 31,
1998 and did not receive any significant compensation in 1998. In setting
compensation levels for the Chief Executive Officer, the Committee reviews
competitive information reflecting compensation practices for similar technology
companies and examines the Chief Executive Officer's performance relative to the
Company's overall financial results. The Committee also considers the Chief
Executive Officer's achievements against the same pre-established objectives and
determines whether the Chief Executive Officer's base salary, target bonus and
target total compensation approximate the competitive range of compensation for
chief executive officer positions in the technology industry. In establishing
his compensation, the Committee reviews the Chief Executive Officer's
performance and compares it with chief executive officers of similar technology
companies.
In Fiscal 98, Dr. Zwan received a base salary of $300,000 plus accrued
vacation of $9,587. Dr. Zwan did not earn an incentive bonus in Fiscal 98.
Overall, Dr. Zwan's base and incentive compensation are below the median
compensation for technology companies, but within the competitive range.
15
<PAGE> 20
The Company hired Mr. Chastelet on December 31, 1998 to serve as President
and Chief Executive Officer. The Company entered into an employment agreement
with Mr. Chastelet which provides for an annual base salary of $275,000.
Additionally, Mr. Chastelet is eligible for a performance bonus of up to 50% of
his base salary to be paid based on 80% quantitative and 20% qualitative
criteria as established by the Board of Directors. Overall, Mr. Chastelet's base
and incentive compensation are below the median compensation for technology
companies, but within the competitive range.
COMPENSATION ARRANGEMENTS GENERALLY
Overall, the Committee believes that the compensation arrangements for the
Company's executives serve the long term interests of the Company and its
stockholders and that, in particular, the equity/option positions of executives
are an important factor in retaining and attracting key executives. Nonetheless,
the Committee intends to continue to review and analyze its policies in light of
the performance and development of the Company and the environment in which it
competes for executives and to retain outside compensation consultants from time
to time to assist the Committee in such review and analysis.
Compensation Committee:
William Seifert
Dr. William F. Hamilton
April 9, 1999
The foregoing report of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference the Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
16
<PAGE> 21
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG DIGITAL LIGHTWAVE, INC., THE NASDAQ TOTAL RETURN INDEX, AND
THE NASDAQ NON-FINANCIAL INDEX
<TABLE>
<CAPTION>
NASDAQ
DIGITAL NASDAQ NON-
MEASUREMENT PERIOD LIGHTWAVE, TOTAL RETURN FINANCIAL
(FISCAL YEAR COVERED) INC. INDEX STOCKS
<S> <C> <C> <C>
2/7/97 100.00 100.00 100.00
12/31/97 104.47 116.46 111.19
12/31/98 18.41 163.59 162.75
</TABLE>
The above graph assumes that $100.00 was invested in the Common Stock and
in each index on February 7, 1997, the effective date of the Company's initial
public offering. Although the Company has not declared a dividend on its Common
Stock, the total return for each index assumes the reinvestment of dividends.
Stockholder returns over the period presented should not be considered
indicative of future returns. Pursuant to regulations of the SEC, the graph
shall not be deemed to be "soliciting material" or to be "filed" with the SEC,
nor shall it be incorporated by reference into any filing under the Securities
Act or the Exchange Act.
17
<PAGE> 22
PROPOSAL TWO
RATIFICATION AND SELECTION OF INDEPENDENT AUDITOR
(ITEM 2 ON THE PROXY CARD)
The firm of PricewaterhouseCoopers LLP served as independent auditor for
the Company for the fiscal year ended December 31, 1998. The Board of Directors
has selected the firm to continue in this capacity for the current fiscal year.
Accordingly, the Company is asking the stockholders to ratify the selection of
PricewaterhouseCoopers LLP as independent auditor. In the event that
stockholders fail to ratify the section of the independent auditor for the
fiscal year ending December 31, 1999, the Audit Committee of the Board of
Directors will consider it as a direction to select other auditors for the
subsequent year. Even if the selection is ratified, the Board in its discretion
may direct the appointment of a different independent accounting firm at any
time during the year if the Board feels that such a change would be in the best
interests of the Company and its stockholders.
The Company anticipates that a representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting. Such representative will be given the
opportunity to make a statement if he or she desires to do so, and is expected
to be available to respond to questions at the meeting. THE BOARD RECOMMENDS A
VOTE "FOR" SUCH RATIFICATION.
OTHER BUSINESS
The Company is not aware of any other matters to be presented at the
Meeting. If any other matters are properly brought before the Meeting, it is the
intention of the persons named in the enclosed Proxy Card to vote the shares
that they represent in accordance with their best judgment.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals that stockholders desire to have included in the Company's proxy
materials for next year's Annual Meeting of Stockholders must be received by the
Secretary of the Company at its principal executive offices (15550 Lightwave
Drive, Clearwater, Florida 33760) no later than December 10, 1999, and must
satisfy the conditions established by the SEC for stockholder proposals to be
included in such proxy materials.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for Fiscal 98 is being
mailed with this Proxy Statement to stockholders entitled to notice of the
Meeting. At any stockholder's written request, the Company will provide without
charge, a copy of the Annual Report for Fiscal 98 which incorporates the Form
10-K as filed with the SEC, including the financial statements and a list of
exhibits. If copies of exhibits are requested, a copying charge of $.20 per page
will be made. Requests should be sent to Investor Relations, Digital Lightwave,
Inc., 15550 Lightwave Drive, Clearwater, Florida 33760.
By Order of the Board of Directors,
/s/ Steven H. Grant
------------------------------------
Steven H. Grant
Secretary
April 15, 1999
Clearwater, Florida
18
<PAGE> 23
DIGITAL LIGHTWAVE
15550 LIGHTWAVE DRIVE,
CLEARWATER, FLORIDA 33760
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Gerry Chastelet and Steven
H. Grant and each of them, his true and lawful agents and proxies with full
power of substitution in each, to represent the undersigned at the Annual
Meeting of Stockholders of Digital Lightwave, Inc. to be held at the Renaissance
Vinoy Resort, 501 Fifth Avenue, N.E., St. Petersburg, Florida on Friday, May 14,
1999, at 2:00 p.m., local time, and at any adjournments thereof, and to vote as
designated.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below. [ ] WITHHOLD AUTHORITY
(except as otherwise indicated) as to all nominees listed below.
</TABLE>
NOMINEES: 1. Dr. Bryan J. Zwan 2. Dr. William F. Hamilton
3. Gerry Chastelet 4. William Seifert
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NOMINEE'S
NAME IN THE SPACE PROVIDED:
------------------------------------------------------------------------
2. RATIFY AND APPROVE THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITOR
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
and to vote on such other business as may properly come before the meeting
YOUR VOTE IS IMPORTANT! PLEASE VOTE.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" ALL NOMINEES TO THE BOARD OF DIRECTORS, "FOR" THE RATIFICATION OF
SELECTION OF THE INDEPENDENT AUDITOR, AND AS THE PROXY HOLDER MAY DETERMINE IN
HIS DISCRETION WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE
MEETING.
Date:
--------------------------, 1999
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Signature of Stockholder(s)
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Signature of Stockholder(s)
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
THANK YOU FOR VOTING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
